RIL in a fix over D6 gas price

Richa Mishra Updated - March 12, 2018 at 05:29 PM.

Pushes for international benchmarking

Reliance Industries, which will have to start the process of discovering a new price for D6 gas in 2013, is in a fix over how it will go about the task. This is because the company might be asked to supply gas to the same set of customers it is currently catering to, and may thus find it difficult to discover a fair, transparent, arm's length price.

The buyers of D6 gas are also procuring expensive imported gas. Therefore, they are aware of the dynamics of the gas market and would be unwilling to pay a higher price to Reliance.

The current price of $ 4.2/mBtu (at landfall point) has been approved for five years from the date of production. The new price will come into force from April 2014. Reliance has been seeking a revision in D6 gas price since it started production in April 2009, as gas prices have shot up considerably.

Fair price

The D6 operator has been saying that the production sharing contract (PSC) provides for arm's length market price and it has to be a spot price.

The company also said that customers were willing to pay a higher price in 2012. But, if the company goes for the price discovery mechanism, like it did the first time, it may not get a fair price for the gas, industry observers said.

According to Reliance, the production-sharing contract says the price will be valid for three years. Hence the price was in for a revision in 2011. But, the Empowered Group of Ministers, while approving the formula, had given its nod for five years.

The company has been pressing for the D6 gas price to be linked to international benchmarks such as the Japanese crude cocktail — around $12/mBtu.

The prevailing liquefied natural gas price ranges from $10-$18/mBtu, and the current D6 price is way below the market price.

Loss to government

Reliance has been under public glare after the drop in D6 output. According to guesstimates, the Government has lost $ 1 billion by not selling D6 gas at market price. The company said the production-sharing contract does not operate on a cost-plus basis — the Government guarantees the rates of return for the fertiliser industry (15 per cent) and the power sector (14 per cent).

Meanwhile, the Empowered Group of Ministers on Gas, which has allocated D6 gas, is expected to meet on February 13 to decide on further allocation of gas from all domestic sources.

At present, the output from Dhirubhai -1 and -3 fields is about 30 mscmd, with an additional seven mscmd from MA fields taking the total output of the D6 block to 37-38 mscmd.

>richam@thehindu.co.in

Published on February 5, 2012 16:38